Health Savings Account
When you enroll in an HDHP you’re eligible to open an HSA. An HSA is a personal savings account which you can use to pay qualified out-of-pocket medical expenses with pre-tax dollars. You—not the Company—own and control the money in your Health Savings Account. The money you deposit is not taxed, and you can invest it in stocks, bonds and mutual funds. The money in this account (including interest and investment earnings) grows tax-free, and as long as the funds are used to pay for qualified medical expenses, they are spent tax-free.
Unlike a flexible spending account, there is no “use-it-or-lose-it” rule—you do not lose your money if you don’t spend it in the calendar year, and there are no vesting requirements or forfeiture provisions. The account will automatically roll over year-afteryear. Since it is an individual account, if you change health plans or jobs, the balance is yours to keep.
When are you eligible to open an HSA?
You are eligible to open and fund an HSA if you:
- Are enrolled in an HSA-eligible HDHP—Medical Plans C or D.
- Are not covered by other non-high deductible health plans, such as your spouse’s health plan, Health Care Flexible Spending Account, or Health Reimbursement Account.
- Are not eligible to be claimed as a dependent on someone else’s tax return.
- Are not enrolled in Medicare or TRICARE.
- Have not received Veterans Administration benefits.
You can use the money in your HSA to pay for qualified medical expenses now or in the future. Your HSA can be used for your expenses and those of your spouse and dependents, even if they are not covered by the HDHP.
Opening an HSA
Once you enroll in an HDHP medical plan, you are eligible to enroll in an HSA administered by Sample Bank. You will need to begin contributing through pre-tax payroll deductions to receive company funding. An HSA is a real bank account that you own.
- Once you are enrolled you will receive a debit card from Sample Bank for managing your HSA reimbursements.
- Funds available for reimbursement are limited to the balance in your HSA.
- To view your account information go to http://www.samplebank.com.
- Employee (NOT Employer) is responsible for maintaining ALL records and receipts for HSA reimbursements in the event of IRS audit.
Always ask the doctor or provider to file charges with Sample Carrier so network discount can be applied. Then, pay the provider with a debit card from your HSA account based on the balance due after discount.
Please note: You may open an HSA at any financial institution of your choice. However, payroll deductions and company funding are available only for HSAs through Sample Bank.
Maximum Contributions
Your contributions to your HSA, when combined with Sample Company contributions, may not exceed the annual maximum amount established by the Internal Revenue Service. The annual contribution maximum is based on the coverage option you elect. Employees age 55 and older are allowed to make an additional annual “catch-up” contribution of up to $1,000.
| Individual | $3,350 |
| Family (filing Jointly) | $6,750 |
Jessica Asks: How do an HSA and HDHP work together?
- Jessica is single. Her HDHP covers preventive care at 100 percent and has a deductible of $2,600.
- The cost of her routine physical exam and other preventive care is 100 percent covered by her health plan.
- Jessica takes prescription medication on a regular basis. She is responsible for paying for her prescriptions and other qualified medical care until she has paid $2,600—the amount of her deductible.
- After that, she is responsible for paying 20 percent of the cost—or coinsurance—until she reaches her plan’s out-of-pocket limit of $5,000.
| EXPENSE | CHARGE | WHAT THE PLAN PAYS | WHAT JESSICA PAYS |
|---|---|---|---|
| Annual physical exam | $500 | $350* | $0 |
| Medication | $3,000 | $320 | $2,600 + $80 (deductible + coinsurance)** |
| TOTALS | $3,500 | $670 | $2,680 |
Jessica Opened an HSA
- She uses pre-tax payroll deductions and direct deposit, available from her employer, to save $2,750 in her HSA—in part, money saved from her lower premiums.
- Jessica receives $600 from Sample Company in HSA contributions.
- Her federal tax savings with her HSA are approximately $1,093.***
- Even if she uses the HSA to reimburse herself for all of her out-of-pocket expenses, she has still saved $1,093 in taxes.
- At year-end she has $670 left in her HSA as a basis for future savings, or to help pay for medical expenses the following year.
| HSA deposits | $3,350 |
| Federal income tax savings on deposits*** | $1,093 |
| Total out-of-pocket cost (deductible + coinsurance) | $2,680 |
| Account carries forward | $670 |
| * Plan covers preventive care 100 percent. Plan’s negotiated rates with Jessica’s physician apply. ** Plan calls for 20 percent coinsurance once the deductible is met, up to a maximum out-of-pocket expense of $5,000. *** Assumes Jessica is in the 25 percent federal tax bracket and lives in a state where HSAs are not taxed. She also saves 7.65 percent in Social Security and Medicare (FICA) taxes. |
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|---|---|
Mark asks: How does funding an HSA save on taxes?
- Mark has family coverage with a High Deductible Health Plan.
- His total pre-tax contribution for the year is $6,650.
- Every pay period, he puts $255.76 into his HSA.
- Mark’s federal tax bracket is 28 percent.* Mark lives in Illinois, where HSA contributions are not taxed.**
- His total federal and state income tax savings on contributions this year are $6,650 x 0.28 + $6,650 x 0.03 = $2,061.50
- Visit www.SampleBank.com for your own information on claims, account balances and more.
* Please see www.IRS.gov to determine your tax bracket.
** Hypothetical example assumes a state tax rate of 3 percent in Illinois. While Health Savings Accounts were created by the federal government, states can choose to follow the federal tax treatment guidelines or establish their own. Some states have chosen to tax HSA contributions. Talk to your financial advisor or consult your state department of revenue for more information.